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Recent changes to Australia's corporate governance laws
confirm that a Chair is able to vote undirected proxies, providing
certainty to listed companies ahead of this year's AGM
season.
The amendments to the Corporations Act 2001 (Cth),
which came into effect on 28 June with the passing of the
Corporations Amendment (Proxy Voting) Act 2012, will be
particularly welcome by those companies on 'one strike' and
facing a board spill.
Here, partner Michael Hansel and solicitor Katherine Hammond
outline the changes and explain what they mean for listed companies
who are currently preparing their 2012 AGM notices.
Key points
The amendments clarify that an AGM Chair who is also a member
of the company's key management personnel may vote undirected
proxies on the non-binding resolution on executive remuneration
(the 'Remuneration Report Resolution') if:
a shareholder provides express consent in a proxy appointment
for the Chair to exercise the proxy; and
the vote is not being cast on behalf of a shareholder who is a
member of the key management personnel and whose remuneration
details are included in the remuneration report, or a closely
related party of such a member.
While the Remuneration Report Resolution is non-binding, voting
on the resolution is particularly important due to the two-strikes
rule, which requires a listed company to hold a spill vote for all
directors if the resolution receives a 25 percent 'no vote'
in two consecutive years. The recent amendments to the Corporations
Act therefore give listed companies who have received their
'first strike' confidence that the Chair is able to vote
undirected proxies in favour of the resolution, potentially
reducing the likelihood of a 'second strike'.
The recent amendments remove any need for ASIC relief to permit
the Chair to vote on the Remuneration Report Resolution, which some
companies may have sought last year.
Background to the amendments to the Corporations Act
Under the Corporations Legislation (Improving Accountability
on Director and Executive Remuneration) Act 2011, which came
into effect on 1 July last year, key management personnel and their
closely related parties are restricted from voting on resolutions
related to remuneration. Section 250BD(1) prevents such a person or
their closely related party from voting undirected proxies on
resolutions that are connected directly or indirectly with the
remuneration of key management personnel, with an exception if that
person is the Chair of the meeting and the proxy appointment
expressly authorises the proxy to be exercised in those
circumstances.
However, this exception conflicted with two other sections of
the Act. Sections 250R(4) and (5) prevented votes from being cast
on the Remuneration Report Resolution by or on behalf of key
management personnel whose remuneration details are included in the
remuneration report, or their closely related party, unless the
vote is under a directed proxy and is not cast on
behalf of such a person or their closely related party. Those
provisions were expressed to apply despite anything else in the
Corporations Act, and therefore led to the interpretation that they
override the section 250BD exception. As a result, even with
consent, a Chair who was a member of the company's key
management personnel or a closely related party could not vote
undirected proxies on the Remuneration Report Resolution.
In response to stakeholder concern about the inconsistency and
lack of clarity surrounding these amendments, the Federal
Government announced that it intended to amend the Corporations Act
as soon as possible to clarify that the exception applies, and that
a Chair is permitted to vote undirected proxies on the Remuneration
Report Resolution with consent. The Government maintained that the
contrary interpretation was never its intention.
ASIC has the power to grant relief to a company to permit the
Chair to vote on a specified resolution, although it does not have
the power to grant class order relief. Because of this, some
companies spent additional time and expense seeking ASIC relief in
respect of the Remuneration Report Resolution for last year's
AGM.
Award-winning law firm HopgoodGanim offers
commercially-focused advice, coupled with reliable and responsive
service, to clients throughout Australia and across international
borders.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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